How to Qualify for FHA Loans in 2009

Reader Question: I have heard that FHA home loans are perfect for home buyers who don't have a big down payment, like myself. Is this true, and how do I qualify for a loan like this?

You have heard correctly. A mortgage loan that is insured by the Federal Housing Administration (FHA) is usually easier to qualify for than a non-FHA loan. For example, if your credit score is too low to get a mortgage through a lender in the standard fashion, you might find that you qualify for an FHA loan through that same lender. You can also get approved with less money down, which is perfect for first-time home buyers who don't have a lot of cash.

I would like to stress the fact that the government does not actually loan money to consumers. Instead, the insure the loans made by primary lenders such as Wells Fargo, Chase, Citi, etc. So you would still have to apply through a regular mortgage lender to qualify for an FHA loan. And speaking of qualification, here are the general criteria for FHA home loans in 2009 ...

• You'll probably need a credit score of 620 or higher.
• You'll need a down payment of 3.5% or more, in most cases.
• You can only take out a certain size of loan, based on your income.
• Get started here:

You have nothing to lose by applying for an FHA loan through a lender, and it's the only way to know for sure if you can qualify or not. I get endless of emails from people who tell me about their credit scores, their income and debt, and they then ask if I think they are qualified for an FHA mortgage loan. To which I would always reply: "I don't know because I'm not a lender."

For whatever reason, I think a lot of people are intimidated by the mortgage application process. But it's a necessary first step to qualify for an FHA loan -- or any other type of mortgage, for that matter. Even if you don't get qualified, you will at least know what you need to work on (improving your credit score, reducing your debt, saving money, etc.).

Use the link below to get started:


In closing, I would like to point out the difference between qualifying for a mortgage and being able to afford one. Before you even start talking to lenders, you should figure out what your home buying budget is. In particular, you should come up with a maximum amount you can afford to pay toward your mortgage each month.

Believe it or not, it's possible to qualify for a loan that's too big for you. That's how people end up in foreclosure. And if you watch the news, you'll realize that this kind of thing happens all the time. So before you apply for an FHA home loan, find out what you can realistically afford to pay each month.

Here's a related article you might want to check out, written by the folks over at Smart Mortgage Advice: 2009 FHA Requirements

I hope this answers your question, and I wish you well in trying to qualify for a loan. Good luck!

Tax Credit for First-Time Buyers - The Spouse Question

Reader Question: My husband's name is on our mortgage. My name is not on the loan. Could I be eligible for first-time home buyer tax credit?

I don't believe you or your husband would be eligible for the tax credit. Within the context of this credit, a first-time buyer is defined as someone who has not owned a home (as a primary residence) within the three years prior to purchase. It also includes spouses in that definition, so you probably would not meet their definition of a first-time buyer ... even though your name is not on the mortgage loan.

I used the word "probably" in that last sentence, because this is a federal program. These kinds of programs change all the time, so don't take what I've said as gospel. For example, the tax credit used to be for an amount up to $7,500, and you had to pay it back over time (not a true credit). But under the new program, the amount has increased to $8,000 and the payback requirement has been eliminated. See what I mean? It changes all the time.

Of course, I'm not a tax attorney, so there may very well be a loophole of some kind that you can use. But I doubt it.

Related Information:

• Expanded Tax Break for 2009 First-Time Homebuyers (IRS website)
• $8,000 Tax Credit for Home Buyers (this website)

You might also want to dig through the IRS website to see what you can find on this topic. They are the ones who will oversee this program, so it would be worth your time to check there. Here are some other quotes from around the Internet:

"If you're married and your spouse has owned a home in the past three years, you don't qualify for the credit." -Source: Sandra Block, USA Today

"For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse." -Source: www.federalhousingtaxcredit.com

Hope that helps. Take care.

New Mortgage Relief Website Online - Sponsored by FICO and Friends

FICO (NYSE: FIC), the company that developed the credit scoring model used by most mortgage lenders, has joined forces with two non-profit groups to launch a mortgage relief website for consumers.

Are you eligible for mortgage relief under President Obama's Making Home Affordable program? Do you qualify for a loan modification or a refinance?

These are common questions for many struggling homeowners right now, and for obvious reasons. But until recently, this was a hard question to answer. Over the last few weeks, eligibility criteria for the Obama mortgage relief program have been posted on various websites, and often with conflicting information. A new website created by a credit-scoring giant and two non-profit organizations may eliminate some of the confusion.

The new website, MortgageReliefOnline.com, can help you find out if you're eligible for mortgage relief under the newly established federal programs. Specifically, the website allows "at-risk" homeowners to determine if they qualify for a mortgage modification or a refinance loan -- the two key components of the Making Home Affordable program.

The new website is joint effort sponsored by three organizations:

• FICO (credit scoring company)
• The Homeownership Preservation Foundation (a non-profit homeownership advocate)
• Money Management International (a non-profit credit counseling agency)

As mentioned, this website can help you find out if you qualify for a mortgage refinance or modification under the government's Making Home Affordable program -- a program that gives incentives to primary lenders for making mortgage refis and mods.

Here's how the online process works:

1. Visit the Mortgage Relief Online website at www.MortgageReliefOnline.com.
2. Look for the big orange "Click Now" button. Click on it to launch the questionnaire.
3. You'll be asked a variety of questions about your home, your mortgage loan, and your intentions.
4. Based on your input, you'll find out if you qualify for mortgage relief in the form of (A) refinance, (B) loan modification, and/or (C) credit counseling.
5. If it turns out that you qualify for mortgage modification, you're information will be sent to Money Management International.
6. If you are qualified, MMI will work with you to start the loan modification process, and even send a request to your lender on your behalf.
7. There is no charge for the services provided by MMI, and there is no charge to use the website.

If you'd rather use the federal government website to determine eligibility, you can do that by visiting MakingHomeAffordable.gov. But this site merely asks you a handful of questions and then tells you to contact your lender -- not nearly as helpful as the Mortgage Relief Online site. I also recommend perusing the FAQ page on the latter site, because it will help you understand how the process works.

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The Number of Foreclosures Rises Again - So Buy Within Your Means

The number of U.S. foreclosures has risen again, for the month of March and also for the entire first quarter of 2009. So today, we will once more offer advice on buying within your financial means, to prevent this sort of thing from happening to you.

The first-quarter results are in for 2009, and the numbers are downright scary. The total number of foreclosure filings (meaning the paperwork process has begun) was higher in Q1 2009 than any other quarter on record -- more than 800,000 filings in all.

The states hit worst by these foreclosure numbers are the ones you've been hearing about all along, plus one "newcomer" -- Florida, Nevada, California, Arizona and Illinois.

And we have not seen the last of this foreclosure crisis yet, not by a long shot. Home loan modifications will offset some of this pain in the future. But as of right now, the banks cannot (or will not) modify fast enough.

It's unfortunate. It's disheartening. But in many cases, it could have been avoided. Many of these foreclosure cases are the result of home buyers who knowingly bit off more than they could chew. It happens all the time, and it typically results in either a quick turnaround sale or a home foreclosure process.

Sure, there are certain scenarios where the home buyers did everything right, bought within their budget, and merely suffered some kind of financial disaster afterward. But these scenarios represent the majority. Most foreclosure victims had some idea they were getting in over their head with the mortgage loan -- but they did it anyway.

Just the other day, I was watching one of those house-hunting shows on HGTV. It was a young couple buying their first home. At the beginning of the show, they were adamant about buying within their budget. In their words, they said they didn't want to be "house poor" (spending so much on a home that they could barely make ends meet).

You can probably predict the rest. By the end of the show, they had purchased a home that was about $10,000 above their budget cap. "I just have to get this house," the woman said. She got what she wanted, and now she's house poor. She even had to take a second job to help with the mortgage payments. Talk about a foreclosure waiting to happen!

Biggest Mistake: Letting the Lender Set Your Budget

You are the only person who can determine what you can afford, in terms of a mortgage loan. Some home buyers think this is the lender's job, but this is a backward way of thinking. A mortgage lender can only tell you the amount they'll approve you for -- they cannot tell you if that amount is actually affordable for you.

So before you even start house hunting or getting quotes from lenders, determine your own home buying budget. And stick to it! Here are some resources to help you get started:

• Buy Within Your Means to Avoid Foreclosure
• How Much Mortgage Can I Afford?

Remember, it's up to you to set your housing budget. And it's critical to do this early on in the process. It's very possible for a lender to approve you for a loan that's simply too big for you -- it happens all the time. Mortgage companies can sell the loans they make into the secondary mortgage market, which essentially takes the loan off their books entirely. To a certain extent, this removes the "burden" of making sensible loans.

So don't count on a lender to be on your side. You are your only advocate during the home buying process. And ultimately, you are responsible for your own actions, and the consequences of those actions.

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Mortgage Fees and Closing Costs Have Risen - Prepare Early

Most first-time home buyers realize there are certain costs associated with a mortgage loan. Collectively, they are known as closing costs, and they include a dizzying array of fees.

But what you may not realize is that these mortgage fees have reached their highest point in nearly a decade. According to data collected by the Federal Housing Finance Agency, mortgage origination fees (one of many) have reached their highest point in eight years.

Why is this happening? Because most banks need to recoup the losses they've incurred from bad loans, home foreclosures, etc. It's the same reason they are keeping their offered rates higher than the fed rate at which they borrow money.

What Home Buyers Need to Know

So how do you prepare for these mortgage closing costs and fees? How much will you be expected to pay, and when will you know the total amount? Here's what you need to know.

• Mortgage origination fees are just one aspect of your final closing costs. Overall, these costs can total up to between 3% and 5% of the loan amount.
• If you have a less-than-perfect credit score, you will probably pay more fees on your mortgage loan. This is the result of new lending guidelines recently put forth by Freddie Mac and Fannie Mae.
• To avoid these new credit-based fees, you would need to have a FICO credit score of 740 or higher. Here are some tips for raising your score. By the way, having good credit will also help you secure a better interest rate on the loan, so it's a double win.
  
• You will get a "good faith estimate" of these fees and costs when you first apply for the loan. This is required by law, specifically through the RESPA law.
• It's fairly common for the good faith estimate to be lower than the actual closing costs. This is one of the many games that lenders play. Historically, the RESPA legislation has done a poor job cracking down on these discrepancies.
  
• A day before your actual closing / settlement process, you will receive a HUD-1 Settlement Statement. This document will provide an accurate listing of your closing costs. Generally, you would write a check based on the amount listed in your HUD-1 statement and bring it to the settlement.
• The best thing you can do to prepare for this process is to start saving money, as early on as possible. Most lenders will require you to have a certain level of cash reserve in a ready-access account (checking or savings), for this very purpose.

Do you have questions about mortgage fees and closing costs, or other aspects of the home buying process? Feel free to email them to the editors!

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When Does Refinancing a Mortgage Make Sense?

As of today, the average rate on a 30-year fixed mortgage is around 4.8 percent. These are the best rates we have seen in a long time, and they are encouraging many homeowners to try and refinance.

Home loan applications in general have increased over the last few weeks. In particular, refinancing applications are soaring right now. According to the Mortgage Banker's Association, refi loans will account for the majority of mortgage activity in 2009.

But before you try to chase the rates and refinance your home, you need to do your homework. Specifically, you need to find out (A) if you can qualify for refinancing, and (B) if it makes sense to refinance in your financial situation.

Many homeowners believe that a refinance loan always makes sense, as if it's a guaranteed way to save money. But this is clearly not the case. There are scenarios where refinancing would cost more (in closing costs) than the homeowner saves (through lower interest rates). So before you move forward with the process, you should run the numbers and determine if refinancing your mortgage makes sense -- financially speaking.

In some states, there are laws in place to prevent refinancing when it's not to the homeowners advantage. In other words, lenders are prohibited from making refi loans if the homeowner pays more than they gain. But not every state has these types of laws, so you must look out for yourself.

The "Break Even" Rule of Refinancing

Within this context, the break-even point (BEP) is the point at which your costs equal you savings. In other words, the money you pay in closing costs on the refi loan are equal to the money you save via the lower interest rates. In order for a mortgage refinance to make sense, you must be on the positive side of the BEP. And in order to determine this point, you need the following "ingredients":

• The remaining term (months / years) of your current loan
• The term of the new loan
• The interest rate of your current loan
• The interest rate on the new loan (after refinancing)
• The estimated amount of closing costs for the new loan

With these items, you can use a mortgage refinancing calculator to determine how long you must stay in the new loan (after refi) to make up for the closing costs. You'll know where your break-even point lies. This helps you determine if refinancing the mortgage makes sense in your situation.

Tip: You can find plenty of refi calculators online by doing a Google search for that phrase, and most of them are free to use.

Related articles on our site:

Average Cost to Refinance a Home
Getting the Best Rates on a Refi Loan

Home Builders are Feeling Better About the Economy

According to industry surveys and activity levels, home builders in the U.S. are feeling more confident about the housing market. Building activity is up, and builder expectations are also positive.

In some cities, the bottom of the housing market might still be many months away. But home builders across the country are showing signs of increased confidence -- and activity. The Housing Market Index (which measures new homes sales as well as expected sales) rose by more than 50% in the first part of April 2009. That's the largest increase since 2003.

What does this mean to buyers? For one thing, it's a sign of increased activity in the housing market. More would-be home buyers are coming out of their "wait and see" mode to make purchases. This increased activity is partly what's fueling the rise in builder confidence and housing starts. It also means that many housing markets will be hitting bottom (and starting to recover) in coming months.

In other words, now is a good time to buy for many folks. Interest rates are still at record lows, home prices are low but leveling off, and you can still qualify for the first-time home buyer tax credit of up to $8,000.

Where Does a Home Buyer Begin?

Okay, so it's a good time to buy a home right now. But where does a first-time home buyer begin? What are the first steps to be taken with this process? A lot of first-time buyers become confused to the point of paralysis, and have no idea what to do first. Here are some things you should square away, listed in order (more or less):

1. Review the home buying steps listed in this article. This will give you a better understanding of how the process works.
2. Start saving your cash. You'll need it to cover your down payment and the closing costs associated with your mortgage loan.
3. Check your credit score. This is a big part of the mortgage qualification process, so you'll want to know where you stand as soon as possible (and make improvements as needed).
4. Determine your home buying budget -- and stick to it! There are a lot of people in foreclosure right now because they bought more house than they could afford. See this article: How much mortgage can I afford?
5. Once you have (A) researched the home buying process, (B) determined your budget, and (C) started saving cash, it's time to move forward. This means shopping for homes and mortgage loans. We have tools on the main website to help you get home loan quotes online.
   

We will continue to bring you the latest housing news, as well as tips on the home buying process. Just remember, if you're in the market for a new home, now is a good time for buying.

Wells Fargo Home Mortgage Resources - A Useful Website

If you're considering a Wells Fargo mortgage loan to pay for your home purchase, then you obviously have a good reason to visit their website. Like most lenders, Wells Fargo allows you to apply for a loan online, and it's a great way to get the ball rolling.

But their website is also a useful resource for anyone buying a home and shopping for a mortgage, regardless of which lender you end up choosing. I visited the Wells Fargo site earlier this morning to see what kind of mortgage modification programs they're offering, and I ended up staying on the site for a half hour or so. I was pleasantly surprised with the quantity and quality of information they have online for home buyers.

I recommend paying a visit to the Wells Fargo home mortgage site, even if you're not planning to apply for a loan with them. They have a variety of calculators to help you determine the potential cost of a mortgage, with plenty of advice and instructions to go with the calculators.

You can also learn about the various stages of home loan qualification -- how to apply, how you'll be reviewed, how mortgage qualification works, etc. This is especially useful for first-time home buyers, most of whom are unfamiliar with the home loan process.

You can visit the home mortgage section of the Wells Fargo website by visiting WellsFargo.com and choosing the appropriate link. Or your can go straight to the mortgage section through this address: https://www.wellsfargo.com/mortgage/

Apply for a Home Mortgage Today

If you're past the research stage and are ready to apply for your first home loan, you can do that from the mortgage quote section of our website. In that section, you can get quotes for purchase loans, refinancing, home equity and FHA loan.

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Home Prices and Mortgage Rates Hit Record Lows - Now is the Time to Buy

Calling all home buyers. If you've been sitting on the fence about buying a home, and trying to decide if you should buy now or wait until later, let me offer the following points:

1. Mortgage rates on 30-year fixed mortgages just hit their lowest point since 1971.
2. Home prices in most cities have reached their lowest point in decades. *
3. You can still qualify for an $8,000 tax credit when you purchase a home.

* In some cities, home values will continue to fall for another year or two. In other cities (that did not have a big bubble to start with), values might be hitting the bottom.

It's a Good Time to Buy, If...

I've just given you three good reasons to buy a home right now. But there's one big caveat we haven't touched on yet, and that's mortgage qualification. This is the number-one obstacle to home ownership right now. In fact, it has always been the primary obstacle, but with stricter lending standards the hurdle is even higher.

So let me qualify my opening statement. Right not could be a great time to buy a home if you have the following:

• A good credit score, ideally over 750
• Steady employment over the last two years (and for the foreseeable future)
• A manageable level of debt
• Some money set aside for down payment and closing costs

Do you have these things going for you? If so, this could be a very good time for you to buy a home. You'll have plenty of inventory to choose from, you should be able to get a very low interest rate on your mortgage loan, and you might get a credit of up to $8,000 on your next tax return.

The only real downside is that home values will continue to drop in some areas, especially in places that had a big real estate bubble to begin with (i.e., California, Florida, Nevada, etc.). But if you plan to buy a home in a city that didn't crash as hard over the last couple of years, then you can probably avoid the risk of continuing depreciation. In fact, many of these "level" housing markets have already hit bottom and are now recovering.

It doesn't get much better than this, folks! If you're on the fence about buying a home, you should realize that it's a great time to buy right now.

Haven't I gotten your attention yet? I hope so. If you're wondering where to go next, or how to begin the process, you can start right here.